"That's what she said!" is a phrase used in the US in response to an unintended sexual innuendo, similar to the UK phrase "said the actress to the bishop." An example usage might look like the following:

A: (while putting together some furniture) I think this is too small.

B: That's what she said!

In this example, the innuendo is that A was referring to a furniture component (say, a bolt too large to fit into the hole that was drilled in the factory), but the phrase might also refer to a human penis. While popular for a while, the phrase is considered puerile and cliché nowadays, so it isn't often used except in mockery.

In this case, no sexual innuendo is intended; instead, the phrase is used to maximize the ambiguity of the statement. Ambiguity is when a statement could mean more than one thing. In English, it is usually created as a result of pronouns like "he" and "they," which might potentially refer to many different things in context. Here, "that's what she said!" could mean several things, because "that" and "she" could refer to multiple parts of the sentence:

Some female said the entire statement.

Some female said "I could've done what they claimed I did."

Some female is part of the "they" that claimed something about some other female.

Some female reported that some unknown male doubts than another female did something that other people claimed that the other female (or yet another female) did.

Another explanation would be that the intense grammatical ambiguity of the situation allows for any type of interpretation of the situation... even a more "perverted" interpretation. Taken more literally, the "she" in "that's what she said!" could be a hypothetical woman who is known for saying crazy things, thus the grammatically ambiguous statement remind the speaker of this hypothetical woman.

The title text turns this back around, saying that there is actually a sexual innuendo in the statement: apparently the girl in question said this during sex. Since all of these possibilities are highly unusual things to say during sex, the observation in the second sentence is accurate.

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